Sobeys a partner as Target arrives

Chains have food-distribution deal

The grocery section of Target’s new Kildonan Place Shopping Centre store. Sobeys has a long-term supply deal.

YOU might think the newest combatant into Manitoba’s grocery wars would be a direct threat to Canada Safeway, the Real Canadian Superstore and Sobeys.

Two out of three ain’t bad.

The arrival of Target on Monday at Kildonan Place Shopping Centre, Southdale Centre and Brandon’s Shoppers Mall was actually done in concert with Sobeys. The Nova Scotia- based grocer signed a long-term agreement with Target in the fall of 2011 to be its wholesale distributor for "select food and grocery products."

That includes frozen, dairy and dry foods, such as cereal and pastas, of both national brands and Target’s own Archer Farms and Market Pantry banners. The retailing giant also carries prepared foods and sauces but does not sell fresh fruit or vegetables.

Sobeys has a coast-to-coast network of 23 food-distribution centres that will service Target’s 48 stores it has rolled out in the past two months — as well as 86 more that will be opened up before the end of the year — in the same way it supplies its own network of 1,300 grocery stores.

At the time of the 2011 announcement, Sobeys said the associated increased revenue and efficiencies from partnering with Target would lower its costs and strengthen its competitive position.

Robert Warren, a marketing expert at the McCombs School of Business at the University of Texas at Austin, agreed. He said given Canada’s relatively sparse population density compared to the U.S. and the great distances between many major cities, it makes much more sense for Target to piggyback on an existing network than to acquire a fleet of trucks and warehouses itself. "That would be fairly expensive (for Target) and would have a long recovery time on it to get their costs back. Sobeys probably has excess capacity that they could soak up or they could add capacity at much lower cost (than Target)," he said.

Warren conceded Sobeys might lose some of its grocery business to Target but the distribution and wholesale arrangement should more than compensate for that.

"The wholesale margin is probably pretty good given the amount of work they have to do," he said.

Warren said he believes Target’s arrival will have the biggest impact on Canada Safeway stores because their price-sensitive customers share many of the same characteristics. The blow should be a little less to the Real Canadian Superstore, meanwhile, because it has already made the leap to more general merchandise and increasingly goes head-to-head with Walmart, he said.

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